Securitisation volumes down 7.2% in FY18 on GST ambiguity: Report

Large participants who accounted for a fifth of retail securitisation transactions in FY17, shied off in the second half awaiting clarity on GST applicability

Ambiguity on goods and services tax (GST) applicability resulted in a 7.2 per cent decline in securitisation volumes in FY18, after two consecutive years of impressive growth, a report said today.

A shift within banks to priority sector lending certificates (PSLCs) to meet their shortfalls also dented the prospects of the securitisation, the report by ratings agency Crisil said.

"After growing at a breakneck pace between fiscals 2015 and 2017, the volume of retail assets securitisation shrunk last fiscal primarily because of the ambiguity on GST applicability," said Krishnan Sitaraman, senior director, Crisil.

He added that hardening of interest rates towards the end of the year also hurt the volumes of securitisation, where a lender sells off future receivables on an aggregated loan portfolio to a peer.

Retail loans were the biggest component of securitisation, accounting for Rs 84,700 crore of the total Rs 95,100-crore market, the agency said, adding this segment also de-grew by 6.5 per cent.

Large participants who accounted for a fifth of retail securitisation transactions in FY17, shied off in the second half awaiting clarity on GST applicability, it said.

The traded volumes of PSLCs rose 3.7 times that of those witnessed in FY17, leading to a dip in in the securitisation volumes as the activity was largely concentrated on the non-PSL portfolios.

In the last two fiscals, the overall securitisation volumes had witnessed a compound annual growth rate of 53.5 per cent, the agency said.

It said the non-PSL securitisation would continue to drive the securitisation market going forward as well, even though the PSL volumes will be sizeable.

It also welcomed the clarification from the GST council on the applicability of the indirect tax to such assets.

"The GST council's clarification that securitised assets are not liable to GST, and robust demand for non-priority sector lending (PSL) securitisation should bring back participants and support transaction volume after the deceleration seen last fiscal," it said in the note.

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